Guy Opperman’s pension agenda is aligned to the Chancellor’s and the Prime Minister’s, speaking to the delegates of Corporate Adviser’s Master Trust conference, he warned the industry it needs to act together to boost investment into infrastructure and other illiquid assets, or face government intervention on this issue. This is fighting talk.
Opperman went on to threaten providers who don’t co-operate with the Pension Dashboard Programme
“If the industry doesn’t start to embrace the problem and look to solutions when it comes to more investments in illiquids then the government could be forced to do it.”
The prospect of direct Government intervention in the investment and member reporting of a pension scheme will put the pension minister on a collision course with a pensions industry that has so far regarded Guy Opperman as presiding over a period of pension prosperity. His term as Minister has seen the orderly decline of DB, the measured increase in DC saving and markets that have been kind.
I am impressed that Opperman is prepared to get punchy for the consumer. At the CA conference he called for better league tables, so members can get clearer information on how their pension is performing on a host of metrics, from value for money, costs, performance and how from how green their pension is. And in calling for better accountability, he is pointing to Australia , where under-performance is a matter of public disgrace.
The signs are that the Pension Minister is asking the right questions to the right people with regards to the elephant in the room, that workplace pensions don’t pay pensions. As promised, the DWP is now engaging with sympathetic stakeholders on the “Extension of Collective Defined Contribution Provisions”.
Opperman needs to recognize that the speed of change is too slow. The public will get frustrated if we do not get dashboards which are properly populated. DC consolidation is moving at pace but individuals are still not getting the information they need to make decisions on how to bring their pots together. Most worryingly of all, people are not taking advice at retirement (or even the free pension guidance from Pension Wise) , the majority of people are spending their pension savings without any clear plan.
So I applaud the Pension Minister for getting tough and not letting the pension industry get complacent as the money from AE rolls in. I also applaud his recent calls for some DB schemes to “re-risk”.
He is belatedly realizing that the path that his Pension Regulator is on with its DB funding code, is going in the opposite direction to his aims for making pension money matter. He looks like he is getting tough with their direction of travel and let’s hope that his interventions include reminding a certain large DB scheme that by staying open, it can take more risk and do more good. I mean of course the £100bn USS.
But I hope he hasn’t forgotten that for many people , the only pension they will get will be the state pension and that pension will not increase this year in line with earnings, it will not even increase in line with inflation. It will provide a pay-cut to pensioners who will see their standard of living fall next year. With state support for the elderly lagging our peers, this is disappointing.
While I am happy to see a Pension Minister fighting for the saver, I would like to see him do more for those spending their pensions in retirement. The DWP had the opportunity to put a strong case for 5% as next year’s State Pension increase and it didn’t take it,
Despite well-publicisied problems with the state pension, there are some undoubted achievements that Opperman can feel proud of. He has instigated a culture within his department that permeates through DB and DC pensions a sense of the importance of pension investment in achieving our climate change targets
Yesterday Opperman pointed out that 85 per cent of DC pension savings were now explicitly invested to net zero targets, while the TCFD regulations had transformed disclosure around climate change metrics.
By moving towards larger multi-employer schemes with strong governance , we can expect to see better stewardship of assets and a wider distribution of investments , ensuring that our money reaches areas of the economy where pension money has previously been unavailable. There is a commendable sense of purpose about the core agenda. The focus must be on delivering to that rather than distractions such as pension season statements.
The core agenda (dashboards, consolidation, green finance and CDC) cannot be achieved by charm alone and Guy Opperman has now been in his post long enough to shed the nice guy image. While he need not make enemies, he has no need to make friends. His focus must be on delivering a pension system that provides people with better pensions.
The Minister should put his own house in order first. With the Pensions Regulator driving the de-risking gravy train to DB oblivion, no DB scheme in its right mind will get involved with infrastructure and illiquids. The precursor for seeing any re-risking of DB schemes is the scrapping of the proposed new DB funding code.
I’ve been to a few actuarial conferences in recent years at which there has been a speaker from the DWP. I would sum up the position of the DWP as being unconcerned about the decline of DB in the private sector, seeing auto-enrolment and individual DC as the future. Individual DC schemes don’t invest in illiquids and infrastructure because these investments are unsuited to individual DC, where liquid market pricing is needed to buy and sell units. Collective, open schemes on the other hand (whether DB or CDC) are well able to invest in such things, becuase they are (or should be) “buy and hold” investors.
The issue is not merely one of investment, it is one of the nature of pension provision in the private sector: is it pension (DB or CDC) or a savings account (individual DC)? Is DB regulation about regulating the existence of DB? Or regulating DB out of existence? It ought to be the former, but I think we are getting the latter. For the minister to achieve his investment objectives, he first needs the right framework of pension provision.
There is an important social dimension to this. DB pensioners live longer than the population at large. This appears not to be true of DC members though as yet there is insufficient UK data as yet to verify that here. By driving DB schemes to closure the Regulator has shortened the life expectations of the current and future generations.
We are all savers but increasingly few of us get pensions- maybe the comparison will become between those with a pot and those with a pension